Adam Lashinsky is a journalist in San Francisco and author of “Inside Apple: How America’s Most Admired — and Secretive — Company Really Works.”
From a securities-law standpoint, that Kardashian was promoting an esoteric crypto token called EMAX is irrelevant. Her violation was a sin of omission: not disclosing, as required under the law, to her then-225 million Instagram followers that she was on the take. She agreed to pay back her fee, with interest, plus a $1 million fine. That’s surely a rounding error to her, and she didn’t have to say she had done anything wrong.
But it’s noteworthy that the staid regulator went after Kardashian for hyping a cryptocurrency, instead of a more prosaic investment scam. SEC chief Gary Gensler has been engaging in extended skirmishes with a fledgling industry that is pushing the notion of “decentralized finance.”
DeFi, as it’s known by entrepreneurial types who love such cutesy constructions, is anathema to regulators. The whole notion of an unregulated financial industry runs counter to the reason for being of a regulatory agency established to protect investors. Cryptocurrencies such as bitcoin have been around for more than a decade, yet their utility to society — outside of scammers, hackers and other criminals — remains in doubt.
Gensler used the SEC’s action against Kardashian to release a legitimately slick video warning investors not to take investment advice from celebrities who might well have many admirable skills that don’t include financial acumen. “Celebrity endorsements, though, don’t mean that an investment product is right for you or even, frankly, that it’s legitimate,” Gensler said, without naming any celebrity in particular. (Sad but true: Two days after its release on YouTube, the two-minute installment of “Office Hours With Gary Gensler” had been viewed a mere 10,100 times. Kardashian surely wouldn’t waste her time producing a video for such a small audience.)
The wonky but important debate at play here is over the definition of an investment security. Crypto enthusiasts would like to suggest whenever possible that the digital assets they have created are vastly different from stocks, bonds and the like, and therefore shouldn’t come under the purview of the SEC and other regulators. The feds beg to differ, and every other utterance they make about crypto is to warn of its dangers.
The same day one arm of the government let loose against a Kardashian, the Treasury Department released a detailed report on the risks cryptocurrencies present to financial markets. Treasury’s Financial Stability Oversight Council argued for the need to better regulate crypto assets while warning of the dangers they present should they be better incorporated into financial markets.
The risks might be new, but the cryptocurrency hype is part of a con that has been around as long as hucksters have been pushing products — financial and otherwise. That Kardashian likely had no idea what she was talking about in hyping an EMAX token created by a platform called EthereumMax is consistent with the long history of celebrities — now called “influencers’’ — hawking whatever they are paid to hawk. She told her fans she had learned that “a few minutes ago EthereumMax burned 400 trillion tokens — literally 50% of their admin wallet.” Mimicking the odd argot of the crypto world, she’s essentially screaming that this minter of digital tokens has created loads of new inventory. In another context, she might have declared: “I just found out Prada is literally selling thousands of new handbags!” Except that statement would be something she and her followers would understand.
It isn’t so different from the spate of celebrities, such as Shaquille O’Neal and Martin Luther King III, who suddenly became experts on special purpose acquisition companies, or SPACs, in that investment fad’s short-lived heyday a year or two ago. And celebrities have long been questioned for endorsing far more than investments: Eleanor Roosevelt once caused a kerfuffle for accepting $35,000 — a bounty of Kardashian-like proportion in the 1950s — for pushing a popular brand of margarine, a product then eschewed by her blue-blooded social set.
Of the public response, Roosevelt said: “One half was sad because I’d damaged my reputation. The other half was happy because I’d damaged my reputation.” She was unapologetic because she felt she could put the money to good use saving lives. “I don’t value my dignity that highly,” she said.
It’s tough to imagine Kim Kardashian feels any worse about pushing a crypto token whose value has plummeted since she touted it. Her lawyer said she settled to put the matter behind her. As for her dignity, it’s unlikely to be too damaged, either.